Objective

To determine the extent of implementation of the three recommendations included in our initial audit report, Real Property Portfolio (Report 2022-S-14).

About the Program

Empire State Development’s (ESD) mission is to promote a vigorous and growing state economy; encourage business investment and job creation; and support diverse, prosperous local economies across New York State through the efficient use of loans, grants, tax credits, real estate development, marketing, and other forms of assistance. As part of fulfilling its mission, ESD invests in infrastructure and innovation, supports the development of new businesses and industries that will contribute to the development of the economy, provides early-stage support for new ventures, and strengthens the State’s innovation-based economy through partnerships with universities. ESD operates as a public authority that consolidates the operational efforts of the Urban Development Corporation, the Department of Economic Development, and other economic development agencies. To facilitate greater efficiency, transparency, and accountability for the State’s public authorities, the State enacted the Public Authorities Act of 2005 and the Public Authorities Reform Act of 2009. Both pieces of legislation made key amendments to the Public Authorities Law (PAL) regarding the accounting of, reporting on, and disposal of authorities’ real property holdings. Specifically, PAL §2896 requires public authorities to develop comprehensive guidelines detailing the authority’s policy and instruction on the use, awarding, monitoring, and reporting of contracts for disposal of property; maintain adequate inventory controls and accountability systems for all property under the authority’s control; periodically inventory property to determine if properties can be disposed of; and no less than annually publish a report listing all real property of the authority. PAL §2897 outlines the requirements of public authorities for the disposition of real property; for example, when proposing below-market transfers, authorities must provide certain information to their boards and the public. Prior to approving disposals for less than fair market value, the board should consider this information and make a written determination that there is no reasonable alternative to the proposed below-market transfer that would achieve the same purpose as the transfer.

The objectives of our initial audit, issued on August 21, 2024, were to determine whether ESD fully and accurately accounted for and reported on its real property holdings and the need to either hold or dispose of properties, and if ESD disposed of real property in a manner beneficial to the State. The audit covered the period from April 2019 through June 2023. Our initial audit found ESD did not comply with PAL’s requirements to publish a report detailing its real property portfolio, including descriptions of properties disposed of during the reporting period. During our audit, ESD officials created and published their real property portfolio report in December 2022, for the fiscal year ending March 31, 2022. Additionally, as of June 2023, ESD reported it owned 130 properties—of those, 71 (55%) were vacant. Notably, three were former correctional facilities (Downstate, Bayview, and Lincoln) located in or near New York City, which, according to ESD, had potential for use in developing additional housing (including affordable housing). An additional 28 (39%) of the 71 vacant properties were in Niagara Falls, and all but one didn’t have definitive development plans. Lastly, ESD disposed of 10 properties at below-market value between April 2019 and May 2023. While each of the 10 disposals was completed in compliance with PAL’s requirements, below-market transfers for seven properties, disposed of by one of ESD’s subsidiaries, did not include sufficient information about the anticipated economic benefits of the projects compared to the value received and the fair market value of the properties. Specifically, the subsidiaries disposed of seven properties acquired as part of the second phase of the State’s Buffalo Billion Initiative for $3 that were originally purchased for $1.36 million.

Key Findings

ESD made significant progress in addressing the problems we identified in the initial audit report. Of the initial report’s three audit recommendations, two were implemented and one was partially implemented. 

Key Recommendation

ESD officials are requested, but not required, to provide information about any actions planned to address the unresolved issues discussed in this follow-up within 30 days of the report’s issuance.